Rules for the World of Economics

At Uni Bonn, a standard work on international economic law in English has been written

A Swedish energy corporation sues the Federal Republic for damages based on its change in energy policy? The EU is against the import of beef from America that has been treated with hormones? Such problematic cases from global trade, investment and business relationships are governed by "international economic law." Law professor Prof. Dr. Matthias Herdegen from the University of Bonn studies the principles of this complex matter, and he has now presented them in a book with more than 500 pages.

On 30 June 2011, the German Bundestag ratified the country's exit from nuclear energy. The costs of this change in energy policy ("Energiewende") are hotly disputed. Mostly, this is about building new high-voltage power lines. But it might get even more expensive – the Federal Republic might have to pay large amounts of damages to the Swedish corporation Vattenfall, says Prof. Dr. Matthias Herdegen, Director of the Institute of Public Law and the Institute of International Law at the University of Bonn. This is because Germany has submitted to treaties according to which the investments of foreign companies enjoy guaranteed protection.

The Bonn law professor has been studying the legal principles of cross-border economic life for years, and he has collected the results in his new handbook "Principles of International Economic Law". Prof. Herdegen says, "International economic law is a demanding matter that attracts the brightest students." But the matter is as important as it is complex, he explains. "You really cannot understand the business section of a daily newspaper anymore if you do not study these issues."

An international Arbitral Tribunal will decide

International economic life is governed not only by the rules of the Geneva-based World Trade Organization (WTO), but also by a complex network of many other bi- and multilateral treaties. That is the case also with regard to Sweden, the home of the Vattenfall energy corporation, which has an ownership interest in three nuclear power stations in Schleswig-Holstein, two of which were subject to mandatory shutdown in 2011. "International economic law essentially comprises three areas," explains Prof. Herdegen. "Trade regulations, currency law, and the protection of foreign investments." In the case of Vattenfall, e.g., the provisions of the European Energy Charter Treaty apply. Now, the "International Centre for Settlement of Investment Disputes" in Washington D.C. must decide whether according to this treaty, Germany will have to pay damages to Sweden. "It might, e.g., decide that the "Energiewende" corresponds to a violation of legitimate expectations or constitutes partial expropriation. If so, Germany would have to compensate the company."

International Economic law does not prevent any country from making its own policy choices, Prof. Herdegen added, but it requires that they must conform to "fair and equitable" treatment – i.e., by acting as partners and in proportion. This, e.g., also applies to the import of genetically modified products or of beef from animals treated with hormones. While both of these are completely taken for granted in the U.S., it keeps causing controversy in Germany or at the EU from time to time. "A State may restrict the importation of goods if health risks for the population are suspected,” explains Prof. Herdegen. "However, international economic law requires that this be justified on the basis of available scientific expert opinions – and not just based on vague fears or opposition from consumers."

Good governance is a key principle

To Prof. Herdegen, good governance – a well-managed administration and government – is a 'key principle' of the international economic order. This enhancement of good governance does not only benefit the economic actors, but also the citizenship at large, "If the interactions between a state and foreign countries and investors are governed by the rule of law, fairness and transparency, these standards will also transfer to the interactions of this state with its citizens. We call that the 'spill-over effect'." A second pillar is the fact that, according to Herdegen, "International economic law is no longer perceived as a one-way street. We are observing increased interplay with the standards of human rights, environmental, social and labor law." In the author's opinion, there have been additional major changes in the mutual interactions of politics and economy since the start of the global financial crisis and the national debt crisis in the Euro region. "The state has become the central actor again – a position that some held to be outdated." The Bonn expert summarized this as follows, "The state will never be capable to replace the market. But the market must also always be a legally regulated environment."